Report: EV battery sector facing ‘twin challenges’ amid market slowdown

EV battery suppliers are under pressure—pressures, actually, according to a new report from AlixPartners.

Against the backdrop of significant policy changes on vehicle electrification in the US and Europe, EV battery makers face growing uncertainty and challenges related to plant utilization and finances, according to the report.

US EV sales are falling after tax credits of up to $7,500 expired at the end of September under President Donald Trump’s tax and budget bill. Automakers and suppliers are canceling EV projects, mulling cuts to existing electric models, and pivoting into other lines of business like energy storage.

To sum up the situation: “Billions of dollars have been invested in R&D, product development, and associated costs to rapidly scale batteries, lightweight materials, and other vehicle technologies designed to make EVs more attractive and affordable,” per AlixPartners.

But the demand that industry players projected just a few years ago hasn’t materialized, and now EV sales are falling. In 2023, AlixPartners’ own forecast called for EVs hitting 36% US market share by 2030. The consultancy has since slashed this projection in half.

“What we see in our study for the EV battery landscape is that there is a real change or a reset going on,” Rohit Gujarathi, SVP at AlixPartners, told Tech Brew. “Because the past few years, the industry built a capacity for EV batteries for demand that has really not materialized at the scale where people expected it to be. We are entering a phase where the supply is outstripping the demand, and it’s creating challenges both at the operational and financial level for the auto suppliers.”

Twinning: The report homes in on “twin challenges” facing EV battery suppliers: financial pressures and overcapacity, meaning plants are producing more batteries than demand levels can sustain.

Global battery cell manufacturing capacity was four times higher than demand last year, according to AlixPartners. By decade’s end, the firm still expects supply to be 2.9 times higher than demand.

And on the financial front, the report’s authors point to the indicators they use to measure financial stability for battery suppliers, noting that “scores have declined consistently from 2022 to 2024.”

“Layer on broader uncertainty from volatile US tariff policy, recent big swings in prices of steel and aluminum, and it becomes clear why battery manufacturers and automakers alike are struggling to balance steady operations with long-term investment decisions,” the report states.

Strategizing: AlixPartners prescribes a few strategies battery suppliers can use to weather the storm: maximizing plant efficiency, repurposing or ditching underused assets to fix some of the overcapacity issues, tweaking R&D investments “to simplify production, lower costs, and drive technical differentiation,” and focusing on specialized areas where individual companies can demonstrate unique value.

“For suppliers, addressing structural overcapacity and growing financial strain will require sharper operational discipline and targeted innovation,” per the report. “For OEMs, moderating EV demand and shifting policy landscapes call for more strategic supplier partnerships, flexible sourcing commitments that provide agility, and prudent bets on battery technologies that are most likely to deliver long-term competitiveness.”

“This is a critical transition phase for EVs,” Gujarathi said. “The near future is not about acceleration and growth. It’s more about doing some strategic course-correction by focusing on operations, having financial discipline, and making good technology bets. That will help the various players within the industry to come out relatively stronger.”